ACA Unconstitutional — On December 14th, Judge Reed O’Conner, from the Northern District of Texas agreed with 20 state attorneys general and two individual plaintiffs that the ACA is unconstitutional effective January 1, 2019, because Congress reduced the individual mandate penalty to zero on that day. This elimination of the penalty was included in the Tax Cuts and Jobs Act enacted in December 2017. Judge O’Conner rejected the arguments put forward by 16 other state attorneys general as to why the penalty elimination did not fundamentally cripple the law and in any case, that it was not Congress’ intention to render the ACA unconstitutional by simply zeroing out a penalty in one provision of the multifaceted law.

The judge, however, did not make clear in his initial ruling that the ACA should remain in place pending certain appeal of his decision. Realizing the potential for massive turmoil that immediate termination of the ACA would cause, both sides arguing the case immediately asked the judge to stay his ruling pending appeal, and on December 30, 2018, Judge O’Conner did so. It is expected that the attorneys general for the 16 states supporting the ACA will immediately appeal to the Fifth Circuit court. Most observers agree that absent a legislative solution by Congress (one such solution would be to restore a nominal individual mandate penalty, such as one dollar) the case will make its way to the Supreme Court which is likely to hear the case in early 2020 and rule on it in the summer of 2020.

By agreeing to a stay of his ruling, Judge O’Conner recognized the tremendous upheaval that would have been caused had his ruling taken effect on January 1, 2019. He left the ACA as we know it in place and operating, while the opposing parties pursue their appeals. What this means is that brokers and their clients should continue to comply with all aspects of the ACA with the one important change that the individual mandate penalty is zeroed out effective January 1, 2019.

Association Health Plans — In June of 2018, the Department of Labor issued a final rule significantly relaxing the requirements for forming association health plans (AHPs). This rule is expected to create a new, lower-cost market for health coverage for many small businesses (read our article).

Short-Term Health Plans – On August 1, 2018, the Trump administration issued a final rule redefining the permissible term of short-term plans to 364 days and adding that such plans could be renewed twice, effectively allowing a subscriber to stay covered under a short-term plan for three years.

Key Developments at the California State Level in 2018

Single-Payer Fails — The biggest development of the year in California was the failure of SB 562, otherwise known as the Single-Payer bill, to advance out of committee in the Assembly. Against all common sense, the Senate had passed the bill in late 2017 despite the fact that it had developed no plan to finance it. With the bill now in the Assembly’s lap, Speaker Anthony Rendon, recognizing how poorly it was drafted and that it was certain to fail, effectively bottled it up in committee and that is where the bill died in March of 2018. Proponents of the single-payer concept have been building support in the interim however and see new champions for their cause, California’s new governor, Gavin Newsom, who implemented the Healthy San Francisco initiative while he was mayor and Ricardo Lara, the former state senator and author of SB 562 who is now the state’s insurance commissioner. It is expected that supporters of single-payer will be pressuring legislators, the insurance commissioner and the governor to take incremental steps towards a single-payer system.

Turning Back Trump Reforms — Within a few months of the Trump administration loosening regulations governing association health plans (AHPs) and short-term insurance, the California legislature passed and the governor signed into law, bills that effectively neuter the changes enacted by the administration.

Regarding AHPs, California’s insurance commissioner issued this statement essentially prohibiting the establishment of new AHPs and the legislature and governor enacted SB 1375 (read our article) which prohibits carriers from selling any form of group plan, including an AHP to a sole proprietor or their spouse or to a partner or their spouse. SB 1375 did carve out from this prohibition the five existing approved association plans currently operating in California. Sole proprietors and partners were expected to be those most interested in AHPs.

Regarding short-term plans, California outlawed them within months of the Trump administration’s changes (read our article). Effective January 1, 2019, short-term plans are no longer permitted to be sold in California.

Unfortunately for brokers and their clients, these moves by the legislature and governor, while well-intentioned, will have the effect of limiting choice and may lead to higher premiums for individuals and small businesses.

Looking forward in 2019:

It is likely that the Texas lawsuit challenging the constitutionality of the ACA will be in appeals throughout the year;

the Trump administration will continue to look for ways to ease regulation to offer more choice to consumers; and,

in California, the single-payer initiative will probably morph into and piggy-back on the “Medicare-for-all” initiative that is gaining traction nationwide with the more liberal elements of the healthcare reform movement.

Your success is important to us, and we’re actively working on new solutions to support you throughout the year. To get the latest news via text messaging in the future, simply provide your cell phone number here.